After Bailout Plan Approval, Greece Faces a Balancing Act

By JAMES KANTER and NIKI KITSANTONISFEB. 24, 2015

The New York Times

BRUSSELS —

Eurozone finance ministers on Tuesday approved Greece’s plan meant to ease the hardships created by its international bailout, extending that loan program by four more months.

In revising the terms of the bailout program, the new Greek government pledged to take a disciplined approach to budgets, spending and tax collection, while remaining committed to relieving the “humanitarian crisis” caused by years of economic hardship and high unemployment. Many Greeks blame the austerity-budget requirement of the bailout program, agreed to by a previous government, for those privations.

But in trying to achieve that delicate balance — to meet the demands of its European creditors in order to keep the loan money flowing, but without reneging on the anti-austerity campaign promises on which it was elected in January — the government of Prime Minister Alexis Tsipras may find a difficult road ahead.

The finance ministers of the 19 euro-currency countries, who last Friday had agreed to consider an extension of Greece’s 240 billion euro, or $272 billion, loan program, on Tuesday afternoon quickly approved the subsequent plan.

But though the eurozone ministers were leading the negotiations on behalf of their countries, the response from two of the other creditors — the European Central Bank and the International Monetary Fund — conveyed a certain skepticism of whether Greece could live up to the terms of the new agreement.

Mario Draghi, the president of the European Central Bank, said on Tuesday that the Greek measures were a “valid starting point” and suggested that he might be open to changes in the conditions originally imposed by Greece’s creditors when the current bailout program was agreed to in 2012.

But Mr. Draghi said that Athens needed to provide more details about what it had in mind, and that any existing loan conditions the Greeks did not like would have to be replaced “with measures of equal or better quality.”

Christine Lagarde, the managing director of the I.M.F., said she welcomed new commitments by Athens to fight tax evasion and corruption. But she warned that the Greek measures were “generally not very specific” and suffered a lack of “clear assurances” in “perhaps the most important” areas — like the size of pensions; revisions of Greece’s sales tax; continued plans to sell off state-owned assets; and revisions to labor laws, which outside critics consider too burdensome to employers.

On Tuesday, there was no immediate political outcry within Greece. That was in contrast to last Friday when even some members of Mr. Tsipras’s Syriza party criticized even the tentative agreement with the creditors as a sellout.

Greek television reported that some members of Mr. Tsipras’s cabinet on Tuesday expressed objections to some terms of the proposal. Notably, Panagiotis Lafazanis, the energy minister and the leader of Syriza’s radical-left faction, was said to have demanded clarifications. But no ministers made public statements criticizing the document.

Investors hailed the news Tuesday, with Greek stocks rising sharply after the announcement. The Athens index ended the day up about 9.8 percent and bank shares rose 17.3 percent. Interest rates on Greek 10-year bonds, an indication of government borrowing costs, fell to about 8.5 percent, down from 11 percent on Jan. 30.

Some analysts, though, predicted tough going for Mr. Tsipras in coming months.

“He’s really between a rock and a hard place now,” said Carsten Brzeski, chief economist in Germany for the bank ING. “It will be very hard for him to please both sides of this equation,” said Mr. Brzeski, alluding to the restive Greek electorate — who voted in large numbers for Mr. Tsipras to ditch austerity — and to the country’s creditors, who are demanding that Greece enact sweeping reforms before being given more bailout money.

“There is really very little he can sell to his electorate that is linked to his election campaign, apart from a few things like an increase in the minimum wage and a slower pace of privatizations,” Mr. Brzeski said. “His big vote-winners like getting rid of the troika and the bailout program have not happened.”

The troika is the common name of the three bailout monitors — the European Central Bank, the I.M.F. and the European Commission, which is the executive arm of the European Union.

Even Tuesday’s milestone is not the final one for Greece. The plan is expected to still require the approval of lawmakers in Greece, Austria, Estonia, Finland, Germany, the Netherlands and Slovakia before a Saturday deadline, when the European portion of the bailout program is set to expire.

Even the finance ministers who signed off on the deal Tuesday indicated Greece still had more homework to do. “We call on the Greek authorities to further develop and broaden the list of reform measures, based on the current arrangement, in close coordination with the institutions,” the ministers wrote, referring to the I.M.F. and European Central Bank.

There is little doubt that the lenders will continue to scrutinize Greece’s finances, and they could make additional demands on Athens before making the next loan disbursement, which would be €7.2 billion, or about $8.2 billion — money the Greek government needs to meet its debt obligations.

Among the measures promised by Athens are plans to improve management of the national budget, and to enact changes to Greece’s tax-collection system, including changes to sales tax policy, “with a view to limiting exemptions while eliminating unreasonable discounts,” according to a letter that Yanis Varoufakis, the Greek finance minister, submitted to Jeroen Dijsselbloem, the president of the group of finance ministers from eurozone countries.

The letter emphasized Greece’s commitment to curbing tax evasion, particularly among the wealthy, and said that fighting corruption was “a national priority.”

The government also committed not to reverse existing privatizations and said it would review planned sell-offs with a focus on bolstering “the state’s long-term benefits.”

In addition to streamlining the public sector, the government said it would review public spending at every level and will modernize the pension system in an effort to end “loopholes and incentives that give rise to an excessive rate of early retirements.”

Also on the list submitted by Mr. Varoufakis are plans to crack down on the smuggling of fuel and tobacco, which costs the Greek economy billions of euros a year in unrecovered tax revenue; to go after tax delinquents and deal with nonperforming bank loans.

But overhauls are also meant to address what the new government has described as Greece’s “humanitarian crisis,” which it attributed to years of austerity, by offering measures including food stamps and free electricity for the poor, a package that Syriza recently estimated would cost some €1.8 billion.

The government also plans to review a pilot program seeking to guarantee a minimum income to poor families, according to criteria like the number of children in a household or the number of unemployed. The pilot was introduced in the fall by the previous administration, offering monthly payments of €250 to €500 to families, at an estimated total cost of €750 million to €1 billion.

But the cost of extending the plan nationwide, as the new government aims to do, remains unclear.

The government also intends to raise the minimum wage and support struggling homeowners who are unable to meet their mortgage payments.

But Mr. Varoufakis’s letter to the finance ministers said the assistance measures would have “no negative fiscal effect.”

That is the balancing act that many a skeptic might end up betting against.

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COMMENTS

“The Greek people do not yet understand the size of the U-turn,” said Mujtaba Rahman, a chief European analyst for the Eurasia Group, a research firm in London. In reality, said Mr. Rahman, “the government is going to have to do 95 percent of what the last administration had to do.”

Mr. Rahman predicted that Mr. Tsipras might end up needing to reshuffle his government, to receive access to further bailout money while staying in power.

“The Greek electorate wants different things,” Mr. Rahman said. “They want their membership in the euro and they want to end austerity, and at some point these desires will become mutually incompatible.”

James Kanter reported from Brussels, and Niki Kitsantonis from Athens. Jack Ewing contributed reporting from Frankfurt.